ZIMBABWE’S banking sector has been plagued by a confidence crisis emanating from the early 2000s when the local currency continually lost value.
At that time, the inflation rate rose beyond 79,6 billion percent as the Reserve Bank of Zimbabwe (RBZ) kept scrapping zeros from the Zimbabwe dollar.
Ten trillion dollars was printed on a single note, which marked the end of the Zimbabwe dollar era through the adoption of foreign currency as the means of exchange.
It was the 2009 dollarisation that further eroded the banking public’s confidence as depositors have increasingly been seeking alternative savings solutions.
The need to find alternatives has also been triggered by high bank charges, lack of incentives to use banks, and a continued history of financial instability.
The banking sector’s failure to inspire trust has become a major concern for a nation that is aiming to reach a vision of an upper-to-middle-income economy by 2030.
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This, coupled with a history of instability in the banking sector, which saw several banks collapsing between the years 2001 and 2014, also resulted in erosion of value for depositors.
Several depositors lost their hard-earned funds as a few banks closed doors. And, as if that was not enough, unlike in other countries where depositors earn interest on savings, Zimbabwean depositors were penalised for keeping their funds in a savings account, leading to a growing number of self-deposit boxes as individuals and businesses try to safeguard their funds.
Moving forward, in April 2024 after a failed attempt to reintroduce the Zimbabwean dollar through what had been introduced as a supporting currency to the dollar, the bond note, the central bank introduced the Zimbabwe Gold (ZiG).
The creation of the ZiG currency was expected to restore confidence, as it was to be backed by gold reserves. The public anticipated its value would appreciate as gold’s value strengthened, but reality has not matched these expectations.
A limited supply of the ZiG has helped sustain its value so far. However, the parallel market exchange rate has caused the local currency to continue losing value regardless of the gold’s continued firming value, leading the RBZ to officially devalue the ZiG by 43,8% in September 2024.
This move resulted in the convergence of official and black-market exchange rates. Such actions could potentially restore confidence in the local currency among those who accept it as a means of exchange.
Nevertheless, the RBZ has significant work ahead to restore trust in the local currency and the financial system with its efforts to restore confidence in the local currency being met with mixed reactions.
Some see a possibility in restoring confidence in the local currency, while the vast majority still speculate that once the money supply increases, the usual inevitable will follow, and the cycle continues.
The RBZ also needs to ensure that banks behave in a manner that ensures depositor confidence in the local currency. Currently, banks have been profitable, with most of them making money out of bank charges as opposed to interest on loans.
That is because it has been challenging for banks to offer loans at competitive interest rates, such that most of the businesses that ought to be obtaining loans from the banks have minimised their borrowing.
This has further eroded depositor confidence to the extent that most informal players have devised ways of doing business without the use of banks. It is recommended that the RBZ either avail funds to banks at a cheaper rate to reduce the interest rates which banks are offering, or clear channels through which banks can obtain cheaper funding to offer reasonably lower interest rates on loans.
On the other hand, banks ought to be innovative enough to devise incentives to inspire confidence among informal sector players.
Last year, the then RBZ governor, John Mangudya, expressed concern over the amount of money that remained unbanked, circulating in the informal sector.
- Mangudya proposed some incentives that banks need to put in place to promote banking by the informal sector players, which included zero monthly charges on accounts.
Additionally, there have been calls for the RBZ to prioritise and push for transparency, accountability, and good governance amongst banks to restore trust.
The few depositors whose funds remain in the banks are only there because the formal sector is forced to have bank accounts and to pay employees through the bank; otherwise, their confidence in the banking system is also very low.
The RBZ must mandate all banks to reduce their banking charges, a move that will make banking more attractive and beneficial to depositors. Incentivising deposits by introducing interest-bearing accounts as an incentive for the unbanked to keep their money in the banks is also necessary to restore trust in the banking system.
Trust is very delicate and difficult to restore once lost. However, it is not impossible. The banking sector can restore trust and instil confidence in the banking public.
The RBZ must take the lead and come up with reforms that trigger the appetite of potential bankers to reconsider banking their funds.
Such reforms as the elimination of bank charges, banks giving interest on deposits and reducing interest rates on borrowings are necessary.
These reforms may also result in the reduction of robberies and the restoration of confidence in the banking system.
- This article was first published in the Zimbabwe Independent Banks and Banking Survey 2025 Magazine — Capital, Confidence and Credit Market Dynamics.
- Mugadza is investigating officer (mergers) at the Competition and Tariffs Commission. The article reflects her own views, not that of the commission. She can be reached at wmugadza8@gmail.com.